The disappointing September jobs report has re-ignited the talk about a second stimulus package. It has also brought to the center of attention a variety of expiring provisions ranging from enhanced unemployment benefits and subsidies for COBRA health insurance to the $8,000 first-time homebuyers tax credit. Paying families to prop up the housing market is a bad idea that Congress should not renew.
The flaws of this policy are almost too numerous to list. To begin, it represents yet another policy to shift the playing field in favor of owner-occupied housing. Since the inception of the income tax in 1913, mortgage interest has been deductible. Over the nearly 100 years since, a bipartisan effort has yielded subsidies to construct low-income housing, loan guarantees, two government-sponsored mortgage giants in Fannie Mae and Freddie Mac, and ceaseless other approaches to raising the fraction of Americans who are homeowners. Why? There is not any compelling evidence that owning a home improves citizenship, social cohesion, or any other of its supposed virtues. And it is certainly the case that shifting scarce capital away from new technologies and into new condos hurts our competitiveness. Bribing first-time homebuyers is just another chapter in this misguided history.
More recently, the U.S. economy is suffering from the fallout of a housing bubble. That bubble was built on a foundation of the Federal Reserve’s low-interest rate policy, augmented by sustained efforts to meet goals for low-income and minority homeownership. In short, on top of everything else, policies were constructed so as to get as many more people – often of the most marginal financial means – to buy homes. Eventually, these policies backfired as it became apparent that too many people were in homes they could not really afford.
The solution? Put $8,000 on the table to lure new people into these homes. Congress is evidently unfamiliar with the notion that repeating the same action and expecting a different result is insanity.
I’m not sure if it is worse if the policy “works” or if it doesn’t, but it likely won’t. The $8,000 first-time homebuyers tax credit is straight out of the same pool of bad ideas that gave us the misbegotten “cash for clunkers” program. The latter produced essentially no environmental or energy-security benefits (not too surprising when you could get $3,500 for simply raising your mileage by only four miles-per-gallon) – just as a homeownership push has no real benefits.
Cash for clunkers was a superficial “success” from a sales point of view; we saw all those cars driven off the dealers’ lots powered by taxpayer subsidies. Similarly, a check from Uncle Sam has sweetened home sales. But most of the cash for clunkers sales would likely have taken place anyway, albeit later in 2009 or in 2010. All the program did was steal sales from the future and provide a midsummer bump that will soon fade. Similarly, more cash for homeowners will not represent real recovery in the housing market; it will just mean that next year and the year after will see less sales.
There are two fundamental problems facing the housing market. Many mortgage holders cannot afford their terms – it is a mismatch of housing costs and financial capacity. Many others are in houses that are no longer as valuable as the outstanding balance on their mortgages. The first group needs better economic prospects. The latter need mortgages that reflect the fact that their equity is simply gone.
A $8,000 tax credit does nothing for either group, addresses no real problem, and should simply go away.
30 responses so far
1 midcon // Oct 5, 2009 at 9:00 am
Excellent thoughts Douglas. The housing market is key a driver in our economy. It is simplistic to believe that it can be effectively stimulated with a $8K benefit.
There is an impending disaster that the government must deal with (except it will not until the disaster actually happens). Many of the houses were bought at inflated prices and homeowners are now upside down on those homes. Additionally, in order to afford those homes, many homeowners have adjustable rate mortgages. When those mortgages adjust beginning in 2010 these homeowners will be faced with paying more (presuming mortgage rates will increase) for something in which they have negative equity. Most will have no choice but to walk.
The government’s rather feeble attempts at shoring up the housing industry are silly and only marginally useful. The only way this impending disaster will be mitigated without significant government intervention will be the restoration of the sound economic growth and the increase in housing prices. This must happen by next year at the latest.
Speaking personally, I am upside down on my house. I have an ARM. If my mortgage payment adjusts to the point to where I see no return on my investment, I plan to walk away. I will act within my economic best interests.
2 sinz54 // Oct 5, 2009 at 9:20 am
Don’t liberals have any spine???
They committed themselves to an economic program, which they passed just 7 months ago. Now, just because unemployment (a known LAGGING indicator of the economy) is still high, they’re panicking.
Ditto on Afghanistan. Just two months ago, Obama called it “a war of necessity”–now, faced with what fighting a “war of necessity” might entail, he seems to be backtracking.
A true leader has to have a BACKBONE, to remain patient in the face of temporary setbacks. And he has to lead his people to have the same patience.
There should be NO MORE stimulus packages of ANY kind. Period. Instead, President Obama should make a major prime-time address to the nation on the economy–and remind them that it takes a couple of years for any Federal economic program to bring real results. And he should counsel patience.
3 balconesfault // Oct 5, 2009 at 9:43 am
Don’t liberals have any spine???
It’s more a matter that Congress is constantly being lobbied by business sectors anxious to feed at the public trough – and unfortunately Dems (see the healthcare votes) are often as susceptible to this as Republicans.
The housing industry knows that giving homebuyers money to buy houses means they can sell their new houses for more money. So there’s no doubt swarms of homebuilder and allied lobbyists are knocking on a lot of doors trying to use the economic news to advance their own interests.
Meanwhile, this is not like Afghanistan. If you didn’t notice, Afghanistan’s recent elections were likely as crooked as Iran’s. At some point a policy of sending our troops to die to prop up a corrupt regime is going to fail (see Vietnam) … the question becomes how many more do you want to send off to die before we admit it?
4 Observer // Oct 5, 2009 at 10:13 am
I’ve got far more time for cash for clunkers than I do for this. While I wouldn’t have voted for cash for clunkers if given the chance, I can at least see the point. On the other hand, this program was obscene, designed to subsidize home buying beyond the buyer’s means at inflated prices, which was precisely the damn problem which led to the recession in the first place. Not only that, but it did so at huge costs that were probably far out of proportion to even the perceived economic benefit. Whoever led the charge to kill it…?… is going to get a nice letter from me explaining why I think they’re a hero.
5 sinz54 // Oct 5, 2009 at 10:48 am
balconesfault:
I disagree with you and I agree with Mr. Holtz-Eakin that what’s been happening is, as he said:
“The disappointing September jobs report has re-ignited the talk about a second stimulus package. It has also brought to the center of attention a variety of expiring provisions”
Here’s Robert Kuttner, a LIBERAL economist, who wrote today:
“I had a conversation with a senior administration economic official last week and I asked him to suspend disbelief and consider a large increase in public spending to create more jobs….The president should be making the case for increased deficit spending on job-creation in 2010 and 2011, followed by a program of deficit reduction financed by progressive taxation.”
http://www.realclearpolitics.com/articles/2009/10/05/its_the_unemployment_stupid_98582.html
Who lobbied HIM??? Did armies of lobbyists descend on Mr. Kuttner’s office too???
And he’s not the only one. If liberals insist on steering the economy by jobs reports, then they’re going to steer the economy into stagflation–or even into hyperinflation.
And that’s what I meant by having no spine. You don’t start talking about hundreds of billions of dollars in new stimulus on the basis of ONE jobs report. You sit back, chill out, have patience, and counsel patience to others.
Obama got his stimulus package. He got his bailout of GM. He got all he wanted. And that’s enough.
6 Reason60 // Oct 5, 2009 at 11:28 am
As an architect, I was witness to the housing bubble; I recall how homeownership was the perfect storm of shared interests by liberal social theorists, the homebuilding/ real estate/ archtiectural industry, polliticians, and durable goods retailers, all of whom saw only good things coming out of increased homeownership.
While there were/ are certainly a lot of societal benefits to homeownership, they only occur when the occupants really afford them. Placing people in houses they can’t afford, or worse, encouraging them to overconsume, is what led us to this point.
I think it is easy to overemphasize the benefits of homeownership, to the point of warping public policy. It would be far better for people to consume within their limits, than live precariously under swollen mortgages.
7 balconesfault // Oct 5, 2009 at 11:29 am
I have no problem with a large increase in public spending to create more jobs. Just for the reasons pointed out by observer, doing it via subsidizing the purchases of homes is a poor economic policy.
Tell me where Kuttner talked about the need for pumping money into the housing industry, and you’ll have a point.
Bush fought recession by pumping money into housing. Reagan fought recession by pumping money into commercial buildings. But the reality is that pumping into the construction will always simply create bubbles – eventually supply far outstrips demand and the bubble bursts.
But putting money out there to stimulate industries that will really fuel jobs growth over the coming decade, and potentially produce more competitive exports (it’s hard to export housing or office capacity) – I’m up for that. As Krugman has been insisting for 9 months now, there’s a good argument to be made that the original stimulus package was too small by half.
8 midcon // Oct 5, 2009 at 12:31 pm
sinz, There is an illusion that there is a war between liberals and conservatives. It largely believe by both liberals and conservatives. They are both wrong. Having spent most of life working for and with the federal government it is largely (and simply) a case of competing interests.
You want health care that you can afford with no pre-existing conditions. Other’s, who are in good health do not want to be forced to have health care at all.
Farmers want subsidies; Most of us don’t have a farm so that’s not on our list of wants or needs
I am upside down on my house and I want some thing done to mitigate the affect of rising interest rates on my mortgage. You’ve probably had your house for many years and are sitty pretty right now.
Drug companies want decent return on investment for the R&E they’ve done; seniors want affordable drug prices
By law I am unable to collect Social Security and do not want be paying into the Social Security system.
Ethanol producers want tax breakes and other subsidies so they can can sell more ethanol.
Homesless advocates want free homes for everyone.
Lower income folks who pay no taxes want to keep their Earned Income Credit
Well you get the point. Everyone wants something. Congress, who controls the purse strings wants to stay in office. If they give their constitutients what they want, in theory they will be able to continue in office. Along they way, there may be an opportunity to do something that is aligned with their “principles.” But make no mistake – it is not about their party, their principles, or the nation, it is about their needs to stay in office.
Are there exceptions? Sure, but they are few. On this and other sites the posters make this all about things like liberal and conservative principles and the fact is, it’s not about that at all. For the most part, everyone shares a common interest, a strong America with a good economy, effective national security, and peace in our time (and don’t forget a chicken in every pot). But day-to-day – it’s about our self interest – yours, mine, representatives, senators, the President, and yes even escapes self interests. And yet, many of the folks here continue to prattle on about socialism, liberalism, conservatism, and other such chicken ____ as if it is meaningful and of any interest to everyone, when we all know what we really want is what is good for each us – even if it is not good for the nation.
9 EscapeVelocity // Oct 5, 2009 at 3:41 pm
Mugabenomics.
10 Jim // Oct 6, 2009 at 12:28 am
Not in El Paso it aint.
11 EscapeVelocity // Oct 6, 2009 at 12:44 am
I waiting for the Green Jobs Explosion!
LOL!
That mythical unicorn!
12 EscapeVelocity // Oct 6, 2009 at 12:44 am
I waiting for the Green Jobs Explosion!
LOL!
That mythical unicorn!
13 sinz54 // Oct 6, 2009 at 10:08 am
balconesfault:
First of all, that isn’t what Kuttner said. He wanted make-work programs to put the unemployed back to work THIS YEAR–because he fears losses at the polls in November 2010.
Secondly, in an advanced economy, it is IMPOSSIBLE to know which industries would “really” fuel jobs growth over the coming decade. I wouldn’t even attempt to guess.
For example, in the 1970s, the Government would never have put money into personal computers, because back then those were considered toys. Steve Jobs had to go door to door begging for funds from banks and venture capitalists. He finally got enough–and the rest is history.
Thirdly, when the Government funds industries, it’s rarely to support industries that will “really fuel jobs growth.” It’s to bail out OLD industries with lots of union members or lots of potential voters. Case in point, the auto industry. The American auto industry is DEAD. It’s NEVER going to be able to compete with the Japanese companies, never. Yet that’s the industry that the Obama Administration tried to save.
And the same thing happened with the steel industry 20 years ago. Even Reagan tried to use protectionism to support the steel industry. Didn’t matter. It’s no longer a pillar of the American economy.
Liberals have been protectionists for most of my lifetime. Their goal has not been to create new industries. Rather, it’s been to keep union members employed in their old industries. Because they VOTE, and the AFL-CIO does the Get Out the Vote (GOTV) drives in national elections.
14 raygun // Oct 6, 2009 at 10:49 am
“I waiting for the Green Jobs Explosion!
LOL!
That mythical unicorn!”
I wouldn’t chuckle with to much glee jughead, most private equity investment in the last few quarters has been in primarily green technologies. The problem will be the jobs will be filled with better educated immigrants.
15 balconesfault // Oct 6, 2009 at 10:51 am
First of all, that isn’t what Kuttner said. He wanted make-work programs to put the unemployed back to work THIS YEAR–because he fears losses at the polls in November 2010.
I also find a value to “make-work” jobs which improve the public good. For example, go to cities all across America and you’ll find still in use, still regarded as community treasures, “make work” parks and recreational amenities built as “make work” projects during the 1930’s WPA. Where I grew up, the “make work” San Antonio River Walk is a major tourist destination, and has generated countless millions of dollars in revenue for the San Antonio economy over the decades. I know many cities which have similar stories.
You get long term public payback from investement in transportation infrastructure, in electric transmission infrastructure, and in public buildings. “Make work” is not a synonym for “pissing away”, if the money is spent wisely.
Secondly, in an advanced economy, it is IMPOSSIBLE to know which industries would “really” fuel jobs growth over the coming decade.
In 2000, part of Al Gore’s campaign was that taking climate change seriously as a nation would stimulate a jobs boom in conservation and renewable energy technology development. We didn’t, and companies from Denmark and Spain came to quickly dominate much of the wind turbine industry, generating billions in imports for their countries. Now China is supporting their solar panel industry, flooding the market – we’re probably only at about 1/100th saturation for solar panels in America right now. Meanwhile, the Chinese are developing buses run on microcapacitors, which can be recharged quickly station to station in a few minutes while loading/unloading.
For example, in the 1970s, the Government would never have put money into personal computers, because back then those were considered toys. Steve Jobs had to go door to door begging for funds from banks and venture capitalists.
But without the internet – a Government funded system – personal computer usage in America would be a fraction of what it is today.
The American auto industry is DEAD. It’s NEVER going to be able to compete with the Japanese companies, never.
Wow. Why does Sinz hate America so much? I cannot understand why someone would make this statement.
And the same thing happened with the steel industry 20 years ago. Even Reagan tried to use protectionism to support the steel industry. Didn’t matter. It’s no longer a pillar of the American economy.
And yet, it remains an important component of the American economy.
Because they VOTE, and the AFL-CIO does the Get Out the Vote (GOTV) drives in national elections.
That is the filter I see from you on almost every issue, Sinz. It is certainly not a pathway to the Republican Party becoming more progressive, which is what I think it needs to become to have future electoral success. You can’t keep counting on reactionary cycles to hold power.
16 sinz54 // Oct 6, 2009 at 1:53 pm
balconesfault:
“In 2000, part of Al Gore’s campaign was that taking climate change seriously as a nation would stimulate a jobs boom in conservation and renewable energy technology development. We didn’t”
Sure, “we” did.
Silicon Valley has numerous flourishing projects on such “green” technologies. Go look for yourself. They are a world-class competitor in that field.
The difference is the potential domestic MARKET.
You can’t compare Denmark or any other tiny European country to America.
“Green” technologies are less effective here, because we’re 3,000 miles across, with lower population density, with suburban sprawl making the automobile the only practical transportation system.
If Americans decide that solar panels will pay for themselves, they’ll buy them from Silicon Valley. But right now, oil and natural gas are cheaper and easier. (In the last “energy crisis” of the 1970s, there was a big rush here in the Northeast to put solar panels on home rooftops. Once the price of oil came down in the 1980s, the solar panels were removed.) In the meantime, Silicon Valley can sell their “green” products overseas.
“But without the internet – a Government funded system “
The Internet was NOT a “government funded system.” In the 1970s, the Government funded basic R & D to create the TCP/IP protocols. Then, they used these data protocols to network various Defense agencies and universities that were doing that R&D. That was called the “ARPANET.” But it was still tiny, and certainly not international. Only much later was this technology commercialized into the Internet.
Now I’ve always supported big increases in R&D. But developing a networking protocol like TCP/IP is one thing; nationalizing a company (GM) on the verge of bankruptcy just so you can save the jobs of its workers is quite another.
Why does Sinz hate America so much?
Is this the new liberal line? If you oppose Obama’s constituents, you’re unpatriotic???
You know it’s true. General Motors is now LESS likely to sell cars competitively than it was before. Who would buy a car from a bankrupt company that was nationalized indefinitely? And why is being against GM the same thing as being against America?
You’re contradicting yourself. You want to invest in “green” technologies for the future–and yet you’re defending the auto industry, which has fought environmental regulations tooth and nail for most of my lifetime. John Dingell, the bought-and-paid-for representative of the auto industry, had fought against global warming legislation.
The auto industry gave us the SUV, arguably the most anti-green vehicle ever. Now if you liberals were serious about “green for the future,” you would have predicated your bailout of the auto industry upon a commitment from them to COMPLETELY phase out the SUV. No more Tahoes. No more Ford Explorers.
That is the filter I see from you on almost every issue, Sinz.
What we see is liberals like you using pie-in-the-sky visions about “green” and “solar” and claptrap like that, to camouflage doling out tens of billions of dollars in pork to those groups that voted Dem. Most notably, organized labor.
You talk a good game about “green.” But it was GM that got bailed out.
If liberals want to prove they’re sincere, they should GET RID of General Motors.
17 balconesfault // Oct 6, 2009 at 4:52 pm
And why is being against GM the same thing as being against America?
Of course, I didn’t say that. Rather, I was challenging your allegation that The American auto industry is DEAD. It’s NEVER going to be able to compete with the Japanese companies, never.
I see that as a deepset pessimism about America.\
Now if you liberals were serious about “green for the future,” you would have predicated your bailout of the auto industry upon a commitment from them to COMPLETELY phase out the SUV. No more Tahoes. No more Ford Explorers.
I actually agree. By the same token, the Obama Administration is far more business-centrist than I am on things like that, and is willing to allow automakers to make those decisions, just as he’s willing to allow investment bankers who are raking in hundreds of billions in our tax dollars to keep doing their business as normal.
18 EscapeVelocity // Oct 6, 2009 at 10:38 pm
The Dems are expanding the CRA.
Nice touch!
19 EscapeVelocity // Oct 7, 2009 at 12:19 am
Look, we have a nice steel production plant down here in South Carolina. Nucor.
Boeing is building parts for its new jumbo jet in Charleston.
BMW is making motorcycles and SUVs up in Greenville.
We have heavy production capability. We have a domestic car manufacturing capability. It just doesnt have GM stamped on it, and steel industry, just not in Pittsburg. Hell, even Ford is doing alright by making smart moves, even though its still has the UAW dragging it down. Parts manufacturers from up North supply the BMW, Mercedes, Toyota, and Honda.
You need to face the facts that the South is the new industrial belt and instead of trying to protect your industries, innovate or reorganize to compete. Instead of having the government subsidize and protect your inability to compete effectively and effeciently. The problem is you have grown so complacent in your belief that you are entitled to a better living than anyone else in the rest of the country.
20 balconesfault // Oct 7, 2009 at 1:44 am
Boeing is building parts for its new jumbo jet in Charleston.
Yep – and how has that worked out for Boeing?
A prime example was the botched assembly of the fuselage at a South Carolina plant run by Global Aeronautica, an alliance of Italy’s Alenia Aeronautica and Vought Aircraft Industries of Texas.
South Carolina spent about $75K per job in incentives to BMW when they got them to move there. South Carolina gave Nucor a big big cut on electricity pricing to nab that plant. Boeing expansion is also coming with a big tax incentive and infrastructure pricetag for the state that Washington has been unwilling to match.
Yes, states can buy jobs by making everyone else in the state pay more in taxes or utility charges to make up for it. And states in the south have been dedicated to that principle throughout the last few decades. Yet SC still has an unemployment rate above the national average.
21 EscapeVelocity // Oct 7, 2009 at 1:54 am
Yes, the State of SC…..NOT THE FEDERAL GOVERNMENT which is subsidizing GM all across the Northern States. Not only is SC encouraging businesses to locate here with tax incentives, we are paying for GM employees to stand around with their thumbs up their arses at the same time (and higher wages and bennies to boot!) ITS CRIMINAL!
22 sinz54 // Oct 7, 2009 at 10:33 am
balconesfault:
Gee, at the Federal level, I thought you liberals called that an “investment.”
How is what SC is doing at the state level all that different from the “green” jobs that Obama touts at the Federal level?
23 sinz54 // Oct 7, 2009 at 10:35 am
escapevelocity:
In the 2010 congressional election campaign, ALL the Republican candidates should be demanding that Obama set a firm timetable for privatizing GM again. Let’s force the issue: Can GM ever compete as a private company again?
I say no.
24 balconesfault // Oct 7, 2009 at 11:01 am
Gee, at the Federal level, I thought you liberals called that an “investment.”
How is what SC is doing at the state level all that different from the “green” jobs that Obama touts at the Federal level?
I would say that having states competing against one another via giveaways to companies is against our national interests … it is a net zero for America if production of aircraft takes place in South Carolina or Washington, but it is a net loss to America if the South Carolina government pays industries to locate there and harms the job base in Washington State, and a net loss to America in that state taxes are Federally deductable – so in a roundabout way Washington State residents will end up helping pay for South Carolina to take their industry.
I guess one could say that from a global perspective, it doesn’t matter if a job is located in China or Wisconsin. I’m a strong nationalist, but I guess I’m not as much a globalist as you – I see a compelling reason to spend tax dollars to ensure jobs stay in Ameica, but no compelling reason to spend tax dollars to move jobs around within America.
25 EscapeVelocity // Oct 7, 2009 at 11:40 am
Unfortunately for balconesfault, there is nothing that the South could have done to get GM to move jobs down here, because of the UAW. So the South went elsewhere. When you treat people like shit, expect the chickens to come home to roost.
26 balconesfault // Oct 7, 2009 at 12:46 pm
Unfortunately for balconesfault, there is nothing that the South could have done to get GM to move jobs down here,
Ignorance abounds.
Bowling Green Assembly Bowling Green KY 839 employees
Shreveport Operations Shreveport LA 2,153 employees
Spring Hill Manufacturing Operations Spring Hill TN 3,425 employees
Arlington Assembly Arlington TX 2,360 employees
GMPT Fredericksburg Fredericksburg VA 102 employees
But why would I expect escape to actually look something up before making a declarative statement?
27 EscapeVelocity // Oct 7, 2009 at 12:51 pm
Too little too late.
You had your run up North, for nearly a 100 years post US Civil War.
Deal with your decline gracefully.
28 EscapeVelocity // Oct 7, 2009 at 12:51 pm
Too little too late.
You had your run up North, for nearly a 100 years post US Civil War.
Deal with your decline gracefully.
29 EscapeVelocity // Oct 7, 2009 at 1:59 pm
You should be happy that the jobs are being kept in the US, it shouldnt make a difference to you, yet somehow it does, that they are being lost in teh North and gained in teh South.
But alas…
Your ruse has been exposed for the lie that it is.
If GM had expanded its operations more out of the region, then they would have had broader support for their bailout, but alas, small minded greedy bigots get what they deserve.
30 balconesfault // Oct 7, 2009 at 3:59 pm
You should be happy that the jobs are being kept in the US, it shouldnt make a difference to you, yet somehow it does, that they are being lost in teh North and gained in teh South.
As I resident of Texas for most of my life, I’m quite happy to have jobs here. It makes my life much easier when I have clients nearby, and I like my neighbors being employed.
That said, I’m very much opposed to Rick Perry handing out big tax abatements and infrastructure committments to lure jobs here. It is unfair to existing businesses, and it often gives away government money to companies who would locate here anyway, and as I said, it is harmful to our national interest.
I would feel quite the same way about Ohio or Michigan offering big incentives for Dell to move one of their facilities up there.
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